Tsipras, in France, Ups the Ante on His Long Bluff Over the Euro

Greek leader betting European Central Bank will have to support keeping Greece in Euro

I may not understand why Alexis Tsipras, the head of the left-wing Syriza Party in Greece, is making public appearances in Paris with less than a month before the revote in his own country. But I do understand his straight-talk strategy here, calling the bluff of EU leaders on whether they will “force” Greece out of the Eurozone in the event of a Syriza victory on June 17.

Alexis Tsipras, the radical left Greek leader, has arrived in Paris to warn EU countries that their turn would come if they failed to oppose the radical austerity that is driving Greece to the brink of “collective suicide” […]

“Greece is a link in a chain. If it breaks it is not just the link that is broken but the whole chain. What people have to understand is that the Greek crisis concerns not just Greece but all European people so a common European solution has to be found,” he told a press conference in Paris.

“The public debt crisis is hitting the south of Europe but it will soon hit central Europe. People have to realise that their own country could be threatened.

“We are here to explain to people in Europe that we have nothing against them. We are fighting the battle in Greece not just for the Greek people but for people in France, Germany and all European countries.”

“I am not here to blackmail, I am here to mobilise,” he said.

There are two motives here. One is to gather solidarity among the other non-German countries in Europe. But the subtext is to call Germany’s bluff. Tsipras is basically saying that a Greek exit from the euro will cause destabilization across other Eurozone countries, and the implication is a dissolution of the monetary union entirely. He is speaking the language of contagion, suggesting that he knows well why Germany won’t even allow Greece to leave the euro. Indeed, there’s a wide swath of unanimity on that point. The G8 leaders just delivered a communique vowing to keep Greece in the monetary union. Even Syriza has said they want to stay; they just want to renegotiate the bailout contract and remove future austerity measures.

Basically we’re seeing a big game of chicken. It’s one thing if Germany knows that the left wing in Greece is bluffing; it’s quite another if the situations are reversed. Tsipras clearly feels he can make certain demands, secure in the knowledge that Germany and especially the European Central Bank cannot afford to cut his country loose (through “bank jogs” in the peripheral countries, a massive amount of risk has been loaded onto the ECB balance sheet, which they would be responsible for in the event of a Eurozone breakup).

Now, it looks as though Syriza’s lead in the Greek polls has softened a bit, suggesting that Tsipras might want to get himself back to Greece rather than partaking in a grand European tour (Berlin is next!). Of course, even the legacy parties in Greece have taken up Syriza’s call for the bailout agreement to be renegotiated. And Germany simply has more to lose than Greece, a country which has already lost almost everything, after all.

At a guess, Greece has considerably more bargaining leverage than it might seem to at first. One useful index of bargaining strength is relative levels of sensitivity to breakdown/catastrophe/failure to reach a deal. It’s plausible that Greece is relatively indifferent to breakdown at this point – years of grinding austerity inside EMU seem barely preferable to the costs of exiting the euro. In contrast, Germany could see the collapse of the euro (and consequent very serious economic costs) if a Greek exit leads to the collapse of confidence in Spanish, Irish, and worst of all, Italian banks. If I were to lay a bet on which side is likely to fold first, I’d be putting my money on the Germans.

The short version of this is that Greek consequences of a Eurozone exit are fairly predictable (short-term suffering, which they’re already experiencing, and devaluation offering a bit of long-term hope), while the consequences for the rest of Europe are largely unpredictable. So that makes it harder for Germany to pull the trigger.

Another good overview, including Tsipras’ commendable views on issues other than austerity and the bailout, comes from Matt Stoller. As he writes, it’s important to keep in mind that a “bailout” of Greece just uses the sovereign as a pass-through to bail out French and German banks. That’s the untold story here. To close, let me quote Tsipras: “The war we are fighting in Europe is not between people or nations, it is between the forces of work and the invisible forces of finance and banks.

Tsipras, in France, Ups the Ante on His Long Bluff Over the Euro

I may not understand why Alexis Tsipras, the head of the left-wing Syriza Party in Greece, is making public appearances in Paris with less than a month before the revote in his own country. But I do understand his straight-talk strategy here, calling the bluff of EU leaders on whether they will “force” Greece out of the Eurozone in the event of a Syriza victory on June 17.

Alexis Tsipras, the radical left Greek leader, has arrived in Paris to warn EU countries that their turn would come if they failed to oppose the radical austerity that is driving Greece to the brink of “collective suicide” […]

“Greece is a link in a chain. If it breaks it is not just the link that is broken but the whole chain. What people have to understand is that the Greek crisis concerns not just Greece but all European people so a common European solution has to be found,” he told a press conference in Paris.

“The public debt crisis is hitting the south of Europe but it will soon hit central Europe. People have to realise that their own country could be threatened.

“We are here to explain to people in Europe that we have nothing against them. We are fighting the battle in Greece not just for the Greek people but for people in France, Germany and all European countries.”

“I am not here to blackmail, I am here to mobilise,” he said.

There are two motives here. One is to gather solidarity among the other non-German countries in Europe. But the subtext is to call Germany’s bluff. Tsipras is basically saying that a Greek exit from the euro will cause destabilization across other Eurozone countries, and the implication is a dissolution of the monetary union entirely. He is speaking the language of contagion, suggesting that he knows well why Germany won’t even allow Greece to leave the euro. Indeed, there’s a wide swath of unanimity on that point. The G8 leaders just delivered a communique vowing to keep Greece in the monetary union. Even Syriza has said they want to stay; they just want to renegotiate the bailout contract and remove future austerity measures.

Basically we’re seeing a big game of chicken. It’s one thing if Germany knows that the left wing in Greece is bluffing; it’s quite another if the situations are reversed. Tsipras clearly feels he can make certain demands, secure in the knowledge that Germany and especially the European Central Bank cannot afford to cut his country loose (through “bank jogs” in the peripheral countries, a massive amount of risk has been loaded onto the ECB balance sheet, which they would be responsible for in the event of a Eurozone breakup).

Now, it looks as though Syriza’s lead in the Greek polls has softened a bit, suggesting that Tsipras might want to get himself back to Greece rather than partaking in a grand European tour (Berlin is next!). Of course, even the legacy parties in Greece have taken up Syriza’s call for the bailout agreement to be renegotiated. And Germany simply has more to lose than Greece, a country which has already lost almost everything, after all.

At a guess, Greece has considerably more bargaining leverage than it might seem to at first. One useful index of bargaining strength is relative levels of sensitivity to breakdown/catastrophe/failure to reach a deal. It’s plausible that Greece is relatively indifferent to breakdown at this point – years of grinding austerity inside EMU seem barely preferable to the costs of exiting the euro. In contrast, Germany could see the collapse of the euro (and consequent very serious economic costs) if a Greek exit leads to the collapse of confidence in Spanish, Irish, and worst of all, Italian banks. If I were to lay a bet on which side is likely to fold first, I’d be putting my money on the Germans.

The short version of this is that Greek consequences of a Eurozone exit are fairly predictable (short-term suffering, which they’re already experiencing, and devaluation offering a bit of long-term hope), while the consequences for the rest of Europe are largely unpredictable. So that makes it harder for Germany to pull the trigger.

Another good overview, including Tsipras’ commendable views on issues other than austerity and the bailout, comes from Matt Stoller. As he writes, it’s important to keep in mind that a “bailout” of Greece just uses the sovereign as a pass-through to bail out French and German banks. That’s the untold story here. To close, let me quote Tsipras: “The war we are fighting in Europe is not between people or nations, it is between the forces of work and the invisible forces of finance and banks.